December 16, 2008 - OPEC said on December 16 that it expected demand for its crude next year to fall by 1.4 million b/d to 30.22 million b/d, some 900,000 b/d less than the group's current output, and warned of a "growing imbalance" in the oil market over the next few months.
The warning came on the eve of the cartel's December 17 meeting in Oran, western Algeria, where ministers are widely expected to agree a new cut in crude output on top of the 1.5 million b/d cut which came into effect in November but which failed to prevent prices continuing their helter-skelter ride downward from record peaks of more than $147/barrel in July to less than $40/b in early December.
"Based on a substantial downward revision in world oil demand, demand for OPEC crude is expected to average 30.22 million b/d, a downward revision of around 700,000 b/d from last month's report," OPEC said in its Monthly Oil Market Report for December.
OPEC also trimmed its forecast of demand for its own crude this year by 170,000 b/d to 31.63 million b/d.
"Initial expectations of a brief and contained financial crisis following the onset of the US subprime crisis have proven to be overly optimistic," it said, noting that credit and equity markets had yet to stabilize and that the "spillovers" from the financial sector to the real economy had become stronger, resulting in a sharp global downturn.
Furthermore, it said, while there had been some hope that the impact of the downturn in OECD countries would be partially offset by emerging market economies, the last few months had shown the interdependence of world markets, with these emerging economies increasingly coming under pressure.
"Given negative growth in world oil demand and positive growth in non-OPEC supply, the demand for OPEC crude is projected to decline sharply in 2009, falling 1.4 million b/d to average 30.2 million b/d," OPEC said.
"Moreover, in the first quarter of 2009, the demand for OPEC crude is expected to see a sharp drop of 2.3 million b/d from the same quarter in the previous year," it added.
"As a result, the recently agreed OPEC production levels will be higher than the demand for OPEC crude, which would lead to a contra-seasonal build in the first quarter and further stockbuilds over the next two quarters," OPEC said, adding that recent data already confirmed this trend with OECD stocks in October and November indicating a contra-seasonal build to the highest level since December 2006.
OECD stocks currently stand at 56.3 days of forward cover, about four days more than the average for the past five years.
"Given the prevailing situation in the market, this surplus could rise even higher if demand growth continues to contract. Furthermore, the contango price structure in the market provides additional incentive for holding stocks, as is evident [from] the increasing use of floating storage, which currently stands at 45 million barrels of crude."
"The growing imbalance in the oil market over the coming quarters will lead to a much higher overhang in inventories, if the global recession deepens," it said. "This presents a real challenge for all market participants and will be the main focus of discussion" at OPEC's December 17 conference in Oran, it said.
Using secondary sources, OPEC estimated its own crude output at 31.1 million b/d in November, 739,000 b/d down from a downwardly revised 31.841 million b/d in October and some 900,000 b/d less than projected demand for OPEC oil next year.
Excluding Indonesia, which will leave OPEC at the end of this year, and Iraq, the 11 members bound by the 1.5 million b/d output cut which came into effect in November pumped an average 27.937 million b/d over the month, more than 600,000 b/d above their 27.308 million b/d ceiling, the report said.
The estimates show Saudi Arabian production falling to 8.797 million b/d from October's 9.369 million b/d.
The International Energy Agency on December 11 estimated OPEC's November output at 31.33 million b/d, with OPEC-11 production at 28.16 million b/d.
A Platts survey of OPEC and oil industry officials on December 9 pegged the group's total output at 31.38 million b/d and OPEC-11 output at 28.16 million b/d.
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